Business acquisition is the process through which one company gains control of another’s operations, assets, and decision-making authority. It’s a strategic move that helps a company (which is acquiring another company) expand its operations, enter new markets, and gain a competitive edge.
Business acquisition typically happens when a company buys a complete or significant stake in another company. The acquisition process generally begins when a larger business identifies and approaches a potential target company. This is followed by detailed due diligence, negotiations, and finally, the signing of a purchase agreement. Once the acquisition process is completed, the target company becomes a subsidiary of the acquiring firm, and its existing owners become shareholders of the new group.
However, purchasing or acquiring another business often involves a great deal of financial and legal commitment. A business acquisition loan can help you meet these expenses without depleting your cash reserves. Continue reading to learn the business acquisition loan’s meaning, benefits, and more.
What is a business acquisition loan?
A business acquisition loan is a special type of funding given to self-employed individuals and companies to purchase an existing business or acquire a significant stake in another firm. Such a loan provides the necessary capital to cover the cost of acquisition, buying assets or shares, and even merging business operations.
Several banks and Non-Banking Financial Corporations (NBFCs) provide business acquisition loans in India. These loans are particularly useful for businesses aiming to scale quickly, enter new markets, or consolidate their industry position. They can be secured (backed by collateral) or unsecured.
The key features of business acquisition loans include:
Loan amount: The loan amount depends on the type of business you are acquiring, your own business experience, and its size. These loans usually range between Rs. 5 lakhs and Rs. 5 crores.
Interest rate: The interest rate depends on your credit score, loan amount, tenure, and several other factors. It may range between 12% to 30% per annum.
Repayment tenure: The repayment tenure may range from 12 to 60 months. Some lenders may offer longer repayment tenures as well.
Collateral: Business acquisition loans can be secured or unsecured. It means that you may or may not have to provide collateral.
How does a business acquisition loan work?
A business acquisition loan helps you buy another business or firm using borrowed funds. It works pretty much like any other business loan in India; the only difference is that it’s structured to finance the acquisition process. Below is a simple, step-by-step walkthrough for business owners or entrepreneurs looking to apply for a business acquisition loan:
1. Step 1 – Identify the target company
Before anything, you must know the company or business you’re targeting. It may be operating in the same domain as yours or a different one. The aim is to expand your venture and eliminate competition.
2. Step 2 – Finalize the deal and chalk out the expenses
In the next step, you finalize a deal with the target company. This can be the most crucial step and requires diligence. Once you have finalized the deal, you can calculate the expenses required to complete the acquisition process.
3. Step 3 – Apply for the loan
Now you can apply for a business acquisition loan with a lender. Be ready to explain how you are going to use the funds and how you are planning to repay them. Before applying, do not forget to check your lender’s eligibility criteria for the loan.
4. Step 4 – Submit the required documents
Gather and submit the required documents to the lender. It may ask for your basic KYC documents (PAN card and Aadhaar card) along with your business registration certificate, audited financial statements, Income Tax Returns (ITRs), bank statements, the acquisition agreement, and valuation report, among others.
5. Step 5 – Wait for approval
Once you have completed the application process, your lender will initiate a verification process. Upon successful verification, it will approve and disburse your loan. The process may take a few working days, provided the documentation is complete and accurate.
6. Step 6 – The repayment begins
After a successful acquisition, you can start repaying the loan amount as per the agreed-upon terms. For instance, you can choose to repay in Equated Monthly Installments (EMIs) for a pre-defined tenure. Once you repay the entire loan amount, the lender will issue a No Due Certificate.
There are multiple types of business acquisitions based on the structure and intent of the deal. Understanding these types helps you choose the right financing strategy and evaluate associated risks.
Explained below are the common types of business acquisitions along with notable examples from the Indian market:
Asset acquisition
When a company only acquires the target company’s assets, it is known as an asset acquisition. The assets may include physical assets, such as machinery, equipment, and unpaid invoices. They can even include intangible assets, such as trademarks, copyrights, etc.
A very recent example of asset acquisition in India is Zomato’s acquisition of a grocery-delivery start-up, “Blinkit”. The former acquired the technology, customer base, and delivery network to enter the quick commerce market.
Stock acquisition
As the name suggests, stock acquisition occurs when a company buys complete or controlling shares of another company. In return, the acquiring company pays in cash or provides shares to the shareholders of the target company. Stock acquisition results in either full or significant ownership and control over business operations and decisions.
One of the largest stock acquisitions happened in 2018, when Walmart acquired a 77% stake in Flipkart (the largest e-commerce company in India). The deal, comprising 16 billion US Dollars, gave Walmart ownership rights and decision-making power.
Friendly acquisition
An acquisition that happens with the mutual consent and agreement between the acquiring and target companies is known as a friendly acquisition. Such an acquisition often benefits both the companies involved and takes place after their boards’ approval.
Most business acquisition examples you come across are friendly acquisitions. The biggest such acquisition to date is Vodafone’s acquisition of Mannesmann in 1999. Another common example of such acquisition from India’s perspective is Byju’s acquisition of Aakash Educational Services.
Hostile acquisition
A situation wherein the acquiring company bypasses the target company’s management and goes ahead with the acquisition after gaining shareholders’ approval is termed a hostile acquisition. This type of acquisition is usually met with resistance from the target company and may or may not benefit both the partners involved.
For example, Larsen & Toubro launched a successful acquisition campaign of Mindtree by acquiring shares from a strategic investor. It was one of the first successful hostile takeovers in the Indian IT sector, which later turned friendly.
Strategic acquisition
A strategic acquisition is made to strengthen market position, gain technology, or expand customer base. For example, Zomato’s acquisition of Blinkit was strategic. The company wanted to expand into the quick commerce industry through the strategic acquisition of Blinkit.
Financial acquisition
When the motive of the acquisition is purely financial, it is known as a financial acquisition. The acquiring company focuses purely on making profits and investment returns from the target company.
Benefits of business acquisition loans
Opting for business acquisition financing can provide you with the resources and flexibility needed to purchase/merge with another business or expand your existing business. It helps reduce upfront cash burden and enables unhindered business growth.
Below are the notable advantages of acquisition loans:
Access to capital
Business acquisition financing allows easy access to the capital required for acquiring another business. It ensures you won’t have to disrupt your working capital or cash flow for such a large-scale transaction.
Faster business acquisition
In the corporate world, the one who makes the first move is the one who wins most of the time. With a business acquisition loan, you won’t have to wait too long to fulfill your vision of acquiring established businesses.
Potential tax benefits
Interest paid on acquisition loans may be eligible for tax deductions under certain conditions. As per Section 37 of the Income Tax Act of 1961, you can claim the interest paid towards your business loan as tax-deductible under the ‘business expenses’ head. This helps in reducing your overall cost of borrowing.
Improved credit score
A business acquisition loan can indirectly help you improve your credit score. When you avail of a loan and repay it in a timely fashion, it boosts your credit score. In turn, it can help you qualify for larger-value loans in the future.
Quick disbursal
Lenders such as Tata Capital understand your precise business requirements and offer tailor-made financing solutions. Additionally, it ensures quick processing and disbursal so that you won’t have to wait to expand your business.
Eligibility criteria for business acquisition loans
Understanding your eligibility for a business acquisition loan is crucial before applying for it. Although the eligibility criteria may vary from one lending institution to another, they usually look at several common factors, including your age, business experience, annual turnover, and CIBIL score. Here’s what they usually ask for:
Age: Most lenders in India provide business acquisition loans to those aged between 21 and 65 years. However, this criterion is not fixed, and some lenders may offer business loans to entrepreneurs aged beyond this range.
Business vintage: Your business vintage or experience plays a significant role in determining your business acquisition loan eligibility. Your business must have been in operation for at least two to three years.
Annual turnover: Some lenders may also ask for a minimum annual turnover to provide business acquisition loans. Businesses with high annual turnovers are more likely to qualify, as they assure lenders of loan repayment.
Collateral requirement: Depending on the loan amount, you may or may not require collateral to avail of a business acquisition loan.
CIBIL score: Lenders typically ask for a CIBIL score of 700 or more to approve business acquisition loan applications. Some lenders provide business loans to applicants with lower CIBIL scores, albeit with higher interest rates.
Interest rates and charges on business acquisition loans
The interest rate is the rate at which you need to pay interest to the lender on your loan. Lenders usually determine business acquisition loan interest rates based on your age, CIBIL score, past business performance, loan amount, tenure, and the existing repo rate. Typically, they range between 12% and 30% per annum for most banks and NBFCs. If you want the interest rate to be the same for the entire loan tenure, you can opt for the fixed rate. However, if you want your business acquisition loan interest rate to change with the repo rate, you can opt for a floating rate of interest.
Apart from the interest rate, lenders may levy certain other charges on business acquisition loans. These include processing charges, documentation fees, EMI bounce charges, and pre-payment charges, among others. The table below depicts the common acquisition loan charges and their range:
Charge
Common range
Interest rate
12% to 30% per annum
Processing fee
Up to 3% of the loan amount
Documentation fee
Usually, a flat fee
Loan cancellation of charges
2% to 4% of the loan amount
Pre-payment or foreclosure charges
3% to 5% of the pre-payment amount
EMI bounce charge
Usually, a flat fee
Risks and challenges in business acquisition
While business acquisition financing can open doors to growth opportunities and expansion, it also comes with inherent risks that you must carefully evaluate. Acquiring another business is a significant milestone. It involves a large-scale financial transaction and mindful planning. If not planned properly, the acquisition can lead to a financial strain or operational disruption instead of the intended synergy.
Below are some common risks and challenges associated with business acquisition:
Overvaluation of the target company
This is one of the most common pitfalls in business acquisition. You may end up overvaluing the target company and paying more than its worth. It can erode profitability and bring long-term headaches. It’s best to conduct thorough financial diligence and seek professional guidance when assessing a target company.
Cultural mismatch
When you acquire another company, you not only take over its business operations but also its employees, managers, and other human resources. This is where differences in management style, employee culture, or organizational values can cause friction. What you can do is prioritize cultural integration strategies and open communication channels early on after acquisition.
Integration and operational issues
Post-acquisition integration of systems, technology, and operations can be more complex and costly than anticipated. Build a clear post-merger integration roadmap and seek advisory support from experts for a smooth transition.
Debt burden
Availing of business acquisition financing adds debt to your balance sheet. It may disrupt your cash flow if things do not pan out as projected. You can opt for a lender that offers flexible repayment schedules to ease your financial burden.
Legal issues
Acquiring a business may bring legal complexities, tax arrears, or added compliance burdens. Be mindful of all such repercussions before proceeding with the deal.
Conclusion
A business acquisition loan can help you gain access to the finances required for merging with or acquiring another company. With benefits like quick disbursal, flexible repayment terms, and a high loan amount, you can leverage these loans to grow and expand your business strategically. At the same time, you must remain aware of the risks and challenges associated with business acquisition and proceed with due diligence. Trusted lenders such as Tata Capital can make your journey smooth and hassle-free with competitive interest rates, minimum documentation, and quick disbursal. Go ahead and apply now!
What documents are required to apply for a business acquisition loan?
Apart from the basic KYC documents, which include your PAN card and Aadhaar card, lenders may ask for your business registration certificate, audited financial statements, ITRs, bank statements, the acquisition agreement, and valuation report to process a business acquisition loan application.
Can startups apply for business acquisition loans?
Yes. Startup companies can apply for business acquisition loans, provided they fulfill the lender’s eligibility criteria. Generally, it’s more challenging to get financing for startups and requires a robust business plan and strong credit history.
How long does the approval process for an acquisition loan take?
The approval process for a business acquisition loan can take anything from a few working days to a few weeks. The timeline depends on the lender’s approval policy and the authenticity of the documents submitted by you.
What is the typical repayment tenure for a business acquisition loan?
The repayment tenure for a business acquisition loan may range from 12 to 60 months. You can choose a suitable tenure as per your repayment capability and the business’s efficiency. Some lenders also offer flexible repayment options to align EMIs with your cash flow and business growth plans.
Is collateral mandatory for a business acquisition loan?
No. Collateral is usually not mandatory for a business acquisition loan. Lenders like Tata Capital offer collateral-free business acquisition loans of up to Rs. 90 lakhs. However, if your credit score is low, your lender may ask you to pledge an asset as security.
Can the loan amount cover the entire business acquisition cost?
Yes. With a business acquisition loan, you can get up to 100% financing of the total acquisition cost. The exact loan amount you can borrow is, however, at the lender’s discretion and depends on your credit profile, business vintage, annual turnover, and several other factors.
What happens if I face repayment difficulties during the loan tenure?
If you are facing difficulty in repaying your loan, you must contact your lender immediately and seek help. It can restructure loan repayment terms or pause your EMIs temporarily until your business starts flourishing again. In the meantime, you can pay only the interest component.
12 December 2025
12 mins read
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